Major Attack on Fed’s Independence – What’s Next for Gold, Silver, and Miners?

DOJ Subpoenas Spark Dollar Selloff

On Sunday, January 11, the Department of Justice served grand jury subpoenas to the Federal Reserve over Chair Jerome Powell’s congressional testimony regarding headquarters renovation costs. Gold immediately surged 3% to record highs above $4,600, the value of the USD Index declined, and the “Sell America” trade returned with a vengeance.

Gold is up – and it moved to new all-time highs, stopping at its rising resistance line based on the most recent tops.

And while gold rallied by almost 3% and miners by over 4%, silver gained over 8%.

The silver – other PMs spread is working in our favor as the white precious metal continues to outperform. Right now, it seems just like volatility, but the final confirmation of silver’s disconnection will arrive when we finally get a meaningful decline – and silver holds up better than other parts of the precious metals sector. That’s when silver’s massive upside potential will be 200% confirmed.

Mining stocks are up, but they are about to reach a resistance level that’s unlike any other.

Namely, the GDXJ is about to reach its all-time high. If someone bought close to the 2011 top, they are only even right now – in nominal terms. In real terms, they will need to wait much longer to get even.

The question – of course – is if the rally based on the recent turn of events regarding the Fed is here to stay. I doubt that the impact will be more than temporary. Here’s why:

The DOJ investigation into Powell represents the most extreme escalation possible short of actually firing him. Trump has now:

· Called Powell a “knucklehead,” “numbskull,” and “major loser”

· Shown Republican lawmakers a draft letter firing him

· Fired Fed Governor Lisa Cook (case pending at Supreme Court)

· Announced “THE TRUMP RULE” that anyone who disagrees with him will never be Fed Chair

· Launched a DOJ criminal investigation

What’s Left to Escalate?

This is maximum pressure. Trump’s Art of the Deal playbook follows a predictable pattern: aim very high, create maximum uncertainty, then settle for something more modest while claiming victory.

It seems that right now (or it could happen in the following hours) the market is already pricing in the worst possible outcome.

Remember when I told you that the USD Index could rally against conventional wisdom when the rates are actually cut based on the buy-the-rumor-sell-the-fact type of reaction?

I think we have the same thing taking place with regard to the attack on Fed’s independence. If this is the case, and the maximum chaos and pressure was just hours ago, then what could happen is actually stabilization (of the current level of pressure/chaos) or actually de-escalation. Note: I’m not saying solving or fixing anything – I’m saying that the level of pressure could decline from the current extreme levels.

This means that PMs and miners could be topping now or very soon.

If not, silver could soar all the way to $120 or so before forming its medium-term top.

Thank you for reading today’s analysis – I appreciate that you took the time to dig deeper and that you read the entire piece. If you’d like to get more (and extra details not available to 99% investors), I invite you to stay updated with our free analyses – sign up for our free gold newsletter now.

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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief